This is the third article in our Tanzania market entry strategies series wherein we focus on the additional key legal issues of dispute resolution and labour law compliance that foreign businesses seeking to expand to Tanzania should consider carefully.
A business transaction or arrangement that involves two countries raises inevitable questions: If a dispute occurs, in which country will the parties resolve the dispute? What dispute settlement mechanism will the parties use?
Under the Natural Wealth and Resources (Review and Re-Negotiation of Unconscionable Terms) Act 2017, any contractual clause that subjects the Tanzanian State to the jurisdiction of foreign laws and courts/tribunals is deemed to be unconscionable and the clause could be renegotiated, failing which it becomes ineffective.
Moreover, the Natural Wealth and Resources (Permanent Sovereignty) Act 2017 prohibits investors from resorting to any foreign court or arbitral tribunal and requires that judicial bodies established in Tanzania and the application of Tanzanian laws be acknowledged and included in any natural resources contract. Yet again, under the Public-Private Partnership (Amendment) Act No. 9 of 2018, “foreign arbitration” is not allowed in public-private partnership (PPP) agreements, especially those relating to natural resources projects.
Therefore, foreign businesses need to give careful thought to these recent legal reforms when entering into natural resources transactions or arrangements in Tanzania.
Businesses domiciled in the Netherlands and seeking to expand to Tanzania should also be aware that the provisions of the Tanzania-Netherlands bilateral investment treaty (BIT), which was terminated on April 1, 2019, will survive for an additional period of 15 years (to April 1, 2034) for investments made before the termination date. The hope is that the governments of Tanzania and the Netherlands will renegotiate and ratify a new BIT, but this process may take up to 6 years.
Generally, in sectors where recourse to international dispute resolution is not fettered by legal rules, inserting an arbitration clause in a contract between a foreign business and a Tanzanian business is a more effective way to provide certainty to the dispute resolution process since Tanzania is a party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "New York" Convention), which is one of the key instruments in international arbitration.
However, the arbitration clause should be appropriately drafted to be enforceable in Tanzania and the other relevant State Party. Furthermore, compromise between the foreign business and its Tanzanian counterpart is vital if both parties are to reach a fair and acceptable position on the governing law and dispute resolution forum.
Labour law compliance
The Employment and Labour Relations Act 2004 (“the ELRA”), read together with the Employment and Labour Relations (Code of Good Practice) 2007 (“the Code of Good Practice”) and the Employment and Labour Relations (General) Regulations 2017 (the General Regulations”), aims at providing better protection to employees in Tanzania.
The ELRA provides for labour standards, rights and duties. In brief, it prohibits forced labour and discrimination in the workplace, of any kind, by the employer. It grants employees the right to form or join a trade union and participate in its lawful activities and the right to strike in respect of a dispute of interest. Regulation 11 of the General Regulations requires a contract for a specified period for a professional and managerial employee to be for a period of not less than 12 months.
Tanzania, with its large and growing population, strategic geographical location and abundant natural resources, is an attractive market for many foreign businesses seeking a platform in the country. However, doing business and investing in Tanzania, as elsewhere in Africa, is not for the faint-hearted. Careful planning and groundwork are necessary to launch a successful Tanzania market entry strategy.
The legal issues highlighted in this and the preceding parts of this series are among the most important that any foreign business looking to enter the Tanzanian market should consider prudently.
Next Saturday, 3 August 2019, we will continue this series to its fourth part.